Does Being Ethical Pay?

Companies spend a large amount of money to be socially responsible and research shows that consumers are willing to reward companies that adhere to higher standards and punish companies that do not. Additionally, research has identified that companies engaging more deeply in ethical practices reap the same rewards from consumers as those who do not engage as extensively.

In a series of tests, consumers were shown similar products, but one group was told that the item was made using high ethical standards and the other group was told the opposite. These experiments showed that consumers were willing to pay a slight premium for the higher standard goods, but they would only buy the unethical goods at a steep discount.

People with high standards for corporate behavior were willing to reward these companies with bigger price premiums and “punish” the unethical companies by only agreeing to purchase at bigger price discounts.

In addition, these experiments show that companies need only invest in a small degree of ethical production to reap the same rewards from buyers as a company that goes to greater efforts. This finding lends some support to complaints about deceptive “greenwashing” practices.

For the purposes of this study, “ethically produced” goods were: 1) the company has progressive stakeholder relations (diversity, consumer safety); 2) the company must follow progressive environmental practices; and 3) the company must demonstrate respect for human rights.

A detailed description and account of the experiments is given in the article.